The TARP program was conceived by the Treasury and the Fed. The original distributions were made after a meeting of the Treasury, the Fed and the CEOs of the top 10 financial institutions in the country. 9 of the 10 CEOs declined. Only Wells Fargo said it was possibly interested. The CEOs were told by Hank Paulson (of the Treasury) it they didn’t all take it they would all lose their jobs. Not sure how he was going to do that but the threat took. All 10 signed on. Upon the news release their equity prices tanked. It took more than 5 years for most to recover to market capitalization levels prior to the announcement.

In subsequent discussions many banks acquiring collapsing companies like Merrill, Countryside, Bear and others told the Treasury they wanted to walk away from those deals because the Treasuy was rushing the purchases and the banks would not have any indemnity from lawsuits for purchasing these funds insolvent entities. The Fed and Treasury again told the CEOs they had to go through with the purchases. Most of the acquiring firms (Wells, BofA, JPM, etc) paid out billions in legal settlements and court cases in the years that followed.

All the big banks paid their TARP funds back. In fact only some smaller community banks failed to do so. TARP remains the most profitable government program in American history.

So as many banks are at their SBA cap or close to it, the desire to do more unprofitable SBA loans when the SBA holds the originating banks liable for fraud in the program is quite limited. I expect a few smaller banks and some non bank financial firms to reopen the lie programs to try and use the teaming PPP funds, but most banks are full and don’t have want the risk. Also remember that SBA defaults have often been left to the the banks loss as the SBA seems to find a lot of ways to get out of paying the guarantee particularly the non real estate programs.